Better Medicare Advantage audits: A suboptimal approach

Taxpayers may recoup a few bucks, but it won't provide better information for seniors wondering if signing up for a private plan is a good deal

The Biden administration announced yesterday it will step up auditing of Medicare Advantage plans, a long overdue effort to rein in fraud by private insurers.

Here’s my analysis: Not only will it not end fraud, it won’t end the broader problem of systematic overpayment to MA plans, which now covers nearly half of all seniors on Medicare.

The bottom line is in the numbers. The latest analysis by the Medicare Payment Advisory Commission shows that the 28 million seniors in MA plans in 2022 cost taxpayers 4% more than it would cost if those seniors remained in the traditional fee-for-service program.

Those Medicare overpayments arise from three factors. The plans get paid more if:

• They achieve a high quality rating (an estimated 75% of seniors in MA plans were in high-quality plans last year, resulting in over $2 billion per year in extra payments to the plans);

• Their initial plan price comes in below the average cost of serving a Medicare beneficiary through fee-for-service medicine. The Center for Medicare and Medicaid Services gives plans a rebate for most of those savings, which are then used to offer extra benefits or lower beneficiaries’ out-of-pocket expenses. That is another $2 billion a year in extra payments; or (and this next one is the subject of yesterday’s announcement):

• They game the risk adjustment system. Medicare pays private plans an amount that is adjusted for the beneficiary’s underlying medical conditions. Most insurers cull patient claims and medical records to identify all their conditions, whether treated or not, and get paid accordingly.

That third and largest element – receiving payments for untreated medical conditions – has been the subject of numerous government, journalistic and academic studies, audits and reports. Estimates of overpayments for so-called upcoding range anywhere from $198 billion to $355 billion over a ten-year period ($20 billion to $36 billion per year).

How much of that will be recovered over the next decade from the new auditing rule announced yesterday? A grand total of $4.7 billion, according to Health and Human Services Secretary Xavier Becerra. That’s just 1-2% of estimated upcoding overpayments.

“The recoveries that we’ll make are less than one-fifth of 1% of the amounts paid to Medicare Advantage plans,” Dara Corrigan, director of the CMS’s Center for Program Integrity, told reporters on a follow-up phone call. “I just think it’s important to think of the larger context and the very, what I would say is, measured and balanced oversight that this rule puts in place.”

CMS offers ‘get out of jail free’ card

Interesting choice of words. The new rule measured all the overpayments between 2011 and 2017 and balanced its books by wiping out the insurance industry’s debts for those years.

The health care press had a field day with that one. “Government lets health plans that ripped off Medicare keep the money,” screamed this morning’s headline on Kaiser Health News’ story by Fred Schulte, who has been covering the issue for the past decade.

Joe Namath is just one of many celebrities hawking Medicare Advantage plans.

CMS has just begun auditing payments for the years starting in 2018. It’s bound to be controversial.

The new rule will use the extrapolation method to determine overpayments. The agency plans to audit a large sampling of MA plans, calculate the medical condition overpayments for those plans, and impose claw back penalties on all plans for those years. Industry executives and the insurance trade group have hinted they will sue CMS if it uses that methodology.

“Our view remains unchanged,” said Matt Eyles, the president of America’s Health Insurance Plans, the lobbying arm for health insurance companies. “This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized.”

Is there another way?

Let’s step back from this controversy for a moment and look at the broader picture. MedPAC has been complaining for years that MA plans are not providing CMS with so-called encounter data, the care delivered for each individual in their plans.

If Medicare knew exactly what treatments insurers paid for the individuals in their plans, it could eliminate the auditing process. It could simply give plans a risk-adjusted prospective payment based on the previous experiences of the beneficiaries who choose private plans.

This would force insurers to do their jobs. First, they would have to conduct actuarial studies of each plan market and submit bids that are based on reality. Instead, the MA insurers systematically underbid, get to offer extra benefits (which become cornerstones of their marketing campaigns), and then recoup that money and more by gaming the quality bonus and risk adjustment system.

Second, it would create a powerful incentive for insurers to actually engage in helping people stay well. If someone had been hospitalized three times the prior year for chronic obstructive pulmonary disease or congestive heart failure, the insurer could make a lot of money by addressing the underlying conditions that led to those acute care episodes.

Where the data?

Why haven’t insurers been forced to cough up that encounter data? After all, we supposedly live in an era of Big Data. I can’t tell you how many health care conferences I’ve attended in the past decade where the uses of Big Data – insurer claims data; electronic health records; all-payer claims databases; and state and regional health information exchanges – are discussed.

Over and over I’ve heard the era of Big Data is going to help providers and insurers better manage populations; identify patients at greatest risk; research real-world outcomes for specific treatments; compare the performance of competing organizations, whether payer or provider; ad infinitum, ad nauseum.

I’m sure it’s happening somewhere. Yet here we have the two biggest payers in health care – Medicare and the private insurance industry – who have yet to come up with the data exchange and computer program that will allow CMS (and outside researchers) to directly compare the health care treatments and, most importantly, the outcomes for beneficiaries on either side of the same program: traditional fee-for-service and Medicare Advantage.

Not only would that help put an end to gaming by the MA plans. It would give CMS and beneficiaries accurate data for determining which plans truly are delivering higher quality at lower cost – if any.

Why do I say “if any”? There have been several studies in recent years claiming MA plans have achieved better outcomes than traditional fee-for-service Medicare. But they are almost always based on partial data sets like registries (see this study, for instance) or have been commissioned by lobbyists for MA insurers (see this study, for instance).

Critics say those studies are flawed because MA plans cherrypick healthier beneficiaries, or, the seniors who choose MA plans don’t use much health care because they are younger and healthier. They are the ones most likely to accept the plans’ narrow networks in exchange for elimninating the need to buy separate supplemental and drug coverage. On the other side of that coin, many lower income seniors, disproportionately minority, are opting into MA plans precisely for that reason: lower upfront costs.

I’m perfectly willing to let the chips fall where they may when it comes to cost, outcomes and quality. But until we get complete data from both MA plans and traditional Medicare in a common database, the claim by the insurance industry that its outcomes are better does not have a scientific foundation.